J.P. Morgan earnings hurt by weak trading results

EmilyGlazer

Volatile markets often boost trading results, but they didn't help J.P. Morgan Chase & Co. in the third quarter.

The nation's largest lender by assets said trading revenue declined 15% during the quarter, though a supersize tax benefit helped the bank report a 22% increase in third-quarter profit.

J.P. Morgan reported profit of $6.8 billion, or $1.68 a share. That compared with a profit of $5.57 billion in the same period of 2014. Excluding $2.2 billion of tax benefits and other items, however, earnings came in at $1.32 a share, a nickel shy of the $1.37 a share expected by analysts polled by Thomson Reuters.

It's "tough to jump up and down about the results given the market beatdown," noted Evercore ISI analyst Glenn Schorr. Shares dropped 1.9% to $60.36 after hours, but Mr. Schorr noted that most of the difficulty in the quarter had been expected in recent weeks.

Revenue at the New York bank fell 6.9% to $22.78 billion during the quarter.

Trading revenue decreased 15% to $4.34 billion from $5.07 billion in the third quarter of 2014. Chief Executive James Dimon said at an investor conference in September that trading results would be "similar" to other banks, following comments from Bank of America Corp. and Citigroup Inc. executives that revenue at their units trading equities, bonds, currencies and commodities were expected to fall about 5% in the third quarter.

Revenue from trading bonds, currencies and commodities fell 23% to $2.93 billion, while revenue from a smaller division that trades stocks rose 9% to $1.4 billion. The bank said that weakness in trading commodities and credit products such as corporate bonds was partially offset by strength in trading currencies, emerging-market debt and equity derivatives.

Adjusting for revenue declines from prior decisions to exit businesses in commodities and elsewhere, the bond-trading unit's revenue fell 11%.

"We did well where there was volatility," said J.P. Morgan Chief Financial Officer Marianne Lake on a call after results were released. "Where there wasn't, [it was] more about low levels of activity, people on the sidelines. It's tougher to make money because less is happening." She noted that markets were still "reasonably quiet" so far in October.

In investment banking, the bank reported a 4.5% year-over-year rise in revenue to $1.61 billion for the quarter and a 35% drop in equity-underwriting fees.

Debt-underwriting fees, however, rose 17% from last year's third quarter, and merger-and-acquisition advisory fees rose 22% year over year.

The bank attributed its significant tax benefits to the "resolution of tax audits and the release of deferred taxes" related to the financial crisis. Its effective income-tax rate for the third quarter was -1.1%, compared with 29.7% a year ago.

J.P. Morgan extended $29.9 billion in mortgages in the quarter, an increase of 41% from the $21.2 billion in the third quarter a year ago. Profit in its mortgage division, one of the largest in the U.S. by volume, was $602 million, up 29% from the $465 million it reported for the third quarter of 2014.

Costs decreased 2.7% to $15.37 billion from $15.8 billion a year earlier. Banks have been under continued pressure to keep costs in check as interest rates have remained low, which limits the profit margins in lending businesses.

The bank's legal tab totaled $1.3 billion, higher than the $1.06 billion it reported a year earlier and the $291 million it recorded in the second quarter. The Wall Street Journal reported over the summer that J.P. Morgan is expected to settle in coming weeks with the Securities and Exchange Commission and Commodity Futures Trading Commission for more than $150 million regarding whether the bank steered some clients into its own investment products without proper disclosure.

Overall profit at the corporate and investment bank was $1.46 billion, a 13% decrease from $1.68 billion a year earlier. In the consumer bank, profit was $2.63 billion, compared with $2.53 billion a year earlier.

J.P. Morgan's commercial bank earned $518 million, a 23% decrease from $671 million a year earlier, and the asset-management unit reported profit of $475 million, compared with $590 million a year earlier.

J.P. Morgan lost $963 million to loan defaults, or 0.51% of its overall portfolio, compared with a 0.65% charge-off rate in the third quarter.

Return on equity, a measure of profitability, rose to 12% from 10% a year earlier. J.P. Morgan faced some questions from analysts and investors earlier this year over whether it might be better for shareholders if the global bank broke itself up into smaller, more manageable units.

The bank continued to cut its workforce last quarter, shedding 1,781 people to 235,678.

On the call with journalists, Ms. Lake noted that loans grew across the bank's balance sheet. She noted that credit-card loans haven't seen growth in many quarters, and even there, the credit-card core loan growth picked up 3%.

J.P. Morgan kicks off the third-quarter earnings season for large U.S. banks. Shares in J.P. Morgan hit an record of $70.61 in July but have fallen 13% since then as investors came to terms with a slowing trading environment and continued low interest rates.

Intraday Data provided by SIX Financial Information and subject to terms of use.
Historical and current end-of-day data provided by SIX Financial Information.
All quotes are in local exchange time. Real-time last sale data for U.S. stock quotes reflect trades reported through Nasdaq only.
Intraday data delayed at least 15 minutes or per exchange requirements.